Clearwater Paper Corporation

At this time, I would like to welcome everyone to the Clean Water Paper Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press bar followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Loan Bojan, Investor Relations. Please go ahead.

Thank you, Celine. Good afternoon, and thank you for joining Clearwater Papers' second quarter 2024 earnings conference call. Joining me on the call today are Arsene Kitsch, President and Chief Executive Officer, and Sherry Baker, Senior Vice President and Chief Financial Officer. Financial results for the second quarter of 2024 were released shortly after today's market close, along with the filing of our 10-Q. You will find a presentation of supplemental information, including a slide providing the company's current outlook posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note slide two of our supplemental information covering forward-looking statements. Rather than rereading this slide, we're going to incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsene.

Thank you, everyone, for joining us, and good afternoon. Let me start with a few comments regarding our recent strategic announcements. As we previously discussed, we believe that both of our businesses require scale to be able to grow and invest, especially given the capital intensive nature of our industry. We took a big step in that direction in our paperboard business by acquiring the Augusta facility from Graphic Packaging. That acquisition closed on May 1st, and we're in the process of integrating the facility into our network and starting to capture synergies. We took another major step by announcing the agreement to sell our tissue business to Safadel America, which is expected to close in the fourth quarter of this year, subject to satisfaction of customary closing conditions, including regulatory approval. We believe that these are transformational and strategic steps for Clearwater Paper. We're focused on strengthening our position as a premier independent supplier of paperboard products to North American converters. The divestiture of our tissue business will allow us to strengthen our balance sheet and position us for future internal and external investments to grow and diversify our paperboard portfolio. We believe that these strategic moves will allow us to continue to grow our business and create long-term value for our shareholders. Let me summarize a few key deal points from the announced divestment. We agreed to sell our tissue business to Sofitel America for cash totaling $1.06 billion. We expect net proceeds from the sale to be approximately 850M, which we intend to use to repay existing debt and meaningfully to leverage our balance sheet. The transaction includes our tissue facilities in Shelby, North Carolina, Las Vegas, Nevada, Elwood, Illinois, and the tissue manufacturing facility at our Lewiston Idaho site. As many of you know, our Lewiston site also houses a paperboard facility, including a pulp mill, two paper machines, and other assets that we are retaining. As part of the proposed transaction, we will be entering into a site sharing agreement with Safadel in Lewiston. This will include a lease of the land and facilities and a services and use agreement. Safadel will also hire our Lewiston Tissue employees at close. We believe that we have come to a good agreement that will allow both companies to operate effectively on the Lewiston site. We look forward to a strong partnership with Sofitel and Lewiston in the years to come. Through this transformation, we're building a paperboard system that supports the growth of converter customers across North America. As part of this growth, we will look at opportunities to expand our product offering, which may include additional paperboard products and substrates. We will evaluate internal investments in our assets and external opportunities that are a good strategic fit for our network. Our goal is to build on our position as a scaled paperboard packaging supplier in North America with a compelling product offering, outstanding service, and a consistent track record of value creation for our shareholders. The Augusta acquisition and the expected sale of our tissue business are both significant and transformational transactions for our company. Accomplishing both over six month period is a momentous feat for our team. I'm pleased with the progress that we're making and excited about the next chapter of the Clearwater paper story. Let me now briefly turn to our second quarter highlights before Sherry dives into the details. We reported net sales of $586 million, which were up 12% from the second quarter of last year. This was primarily driven by incremental volume from the Augusta acquisition. Adjusted EBITDA was $35 million, which was $36 million below the second quarter of last year, primarily driven by the impact from the planned major maintenance outage at our Lewiston facility. Let's continue with a few highlights from our paperboard business. These can be found on pages three and four of our supplementals. Net sales were up 23% versus last year. This was driven by a 46% increase in shipment volume, primarily due to the Augusta acquisition, offset by a 14% decline in pricing, which is largely consistent with what has been reported previously by RSEI. Adjusted EBITDA for the paperboard segment was at 11 million, which included 9 million in insurance recoveries tied to the weather event that impacted us in the first quarter of this year. The decrease in adjusted EBITDA versus the prior year was driven by the planned major maintenance outage in Lewiston with a negative impact of approximately 32 million for the quarter. The outage proved to be more challenging than we expected, and we're now anticipating total impact to be more than $40 million versus our original estimate of 30 to 35 million. Beginning in 2025, we will move all of our paperboard facilities to an annual outage schedule, which is a common practice in the industry. We believe that this will lead to smaller, more predictable, and more manageable maintenance outages and improve our overall operating performance over the course of the year. We'll provide additional information regarding our 2025 outage schedule early next year. Finally, let me provide you with some market insights. Based on the most recent AFMPA data, SBS industry shipments improved sequentially by about 1% between the first and second quarters of this year. Industry operating rates remain flat at around 84% as inventory levels dropped. While we're seeing a gradual recovery, it is proving to be slower than expected. Industry publications are forecasting a continued demand recovery into the second half of this year and into 2025. While recovery has been somewhat slow, we remain bullish on the long-term market fundamentals. We believe that Paperboard is well positioned for growth given consumer preferences and overall sustainability trends. A bright spot in the market today is food service with solid and growing demand. Our backlogs have grown and we're becoming capacity constrained. As a result, we're implementing a previously announced price increase to our customers for these grades, including plate and Cup stock. Let me now provide a brief overview of our quarter per tissue. This can be found on slides three and five. The tissue business continued to perform at an outstanding level. Second quarter revenues were flat compared to last year, $253 million, with 4% volume growth offset by 3% lower cost index-based contractual pricing. We continue to deliver strong operating performance that helped offset sequential increases in pull prices. Adjusted EBITDA for tissue was $41 million in the second quarter, with a margin of 16.4%. This is the fifth sequential quarter of margins above 15%. As we previously stated, we expect to maintain much of the margin improvement that we achieved in 2023 into 2024. I'm deeply appreciative of the work that our tissue team has done over the last several years to deliver sustained improvements in operating and financial performance. With that, let me turn the call to Sherry for additional details on our financial results.